The World Bank has announced funding for creation of an electronic registry that will allow use of household goods, live animals and office equipment as collateral for commercial loans in a move aimed at boosting access to credit.
The bank, through its private investment arm International Finance Corporation, disclosed last week that its working with the government and bankers on development of the collateral registry, which is expected be ready by June 2020. Kenya passed the Movable Property Security Rights Act last year to help bank customers without common and costly forms of collateral such as motor vehicles (logbook) or land (title deed) to access credit.
But the late formation of a centralised electronic registry for mobile assets that financial institutions can use to verify the security offered has delayed application of the law.
“The objective of the project is to increase the reach of credit to individual consumers as well as micro, small and medium enterprises, especially women entrepreneurs who are adversely affected by the traditional lending practice that favours physical assets over movable assets as collateral for loans,” says IFC.
IFC will use $240,000 (Sh24.57 million) to raise awareness among customers, banks and other stakeholders for early adoption of the electronic registry. Goods listed in the electronic registry will have a unique identification number that will allow tracking of those that have been used to secure bank loans or collateral.
Movable assets such as household goods and office equipment have been ignored by lenders as loan collaterals owing to lack of a central registry where they could log in their claim on the asset. This means ownership of a collateral could easily be transferred without the bank’s knowledge, leaving it exposed in case of a default.
Banks have traditionally not accepted movable assets as loan collaterals because of lack of a central database they could log into and make a claim on an asset attached to a loan.
The registry is the answer to the difficulties facing potential borrowers who do not have land to back up their credit applications.